A lot of the people that come to hear me speak or contact me
for a credit consultation have the same goal, to purchase a home or refinance
the current mortgage loan they have.
Usually they contact me after they
have discovered that their current FICO score is not high enough to accomplish
that goal. Since this is a common theme,
I had the idea to write a few helpful tips for people in this situation. Please feel free to share this with your
friends or clients that might benefit from this.
Understand the score
you checked
For clarity sake let us start by me telling you that the
score you are probably using as the basis for determining whether or not your
score is good enough or needs improvement is most likely not an accurate
score. All of these websites and
services that sell you or allow you to view your credit score are not the same
score your mortgage person will utilize.
Be careful putting too much emphasis on the value of these scores. In my opinion if you want to get an idea of
what your FICO score might be, two of the more accurate and free websites are
CreditKarma.com and CreditSesame.com.
Again these are not true FICO scores (which is what your mortgage will
be accessing, but they are usually two of the most accurate as a gauge). Most of the other sites out there I never
recommend to people because they typically are too far off in the range or
model they use.
Take Action
One of the fastest and easiest things you can do to improve
your score is to understand the importance of your credit cards on your credit
report. More specifically the balances
that you are currently carrying on those cards.
A very important factor to your FICO score is the percentage of
revolving credit you are utilizing at the time of the report. A simple tip, the lower the balance on your
credit cards the better when it comes to this.
If your goal is to improve your FICO score in the next few months start
by making your main goal to pay off your credit cards.
Stop using your
credit cards
Now that you have paid off or paid down your credit cards
you want to get the benefit of those lower balances on your credit report. This can’t be accomplished if you keep
charging on those cards every month. All
credit cards have cycles; there are different days where the credit card issuer
reports the balances on your cards to the credit bureaus. This date is not the same as the due
date. To get the score benefit of this
action, after you pay the cards off, stop using them (do not close them) then
wait 45 days before you apply for your mortgage. This way you will actually get the score
benefit of having these cards paid off!
You’re not done yet
Once you have been told that you are approved, that doesn’t
mean it is time to start using the credit cards again or applying for new
credit. A lot of lenders pull a new
credit report late in the process. You
do not want to jeopardize your loan because you decide that a new couch would
look nice in the house that you don’t own yet.
Keep the balances at $0 and don’t apply for anything until after the
loan is closed!
I understand that everyone’s situation and credit is
different. These are just a few simpletips that would benefit the large majority of people that I talk to.
